Annual Tax Act 2024 to bring a large number of tax changes

On June 5, 2024, the Federal Cabinet adopted the government draft of the Annual Tax Act 2024 (JStG 2024). Compared to the draft bill, only minor changes were made in the cabinet version. The Bundesrat has now been asked for its opinion. The legislative process is expected to be completed in the fourth quarter, although changes to the government draft are certainly to be expected.  

The Annual Tax Act’s main objective is to implement necessary adjustments to EU law and ECJ case law as well as reactions to the German Federal Constitutional Court’s (“Constitutional Court”) case law.

The government draft itself highlights the following tax regulations in particular:

• Implementation of the Constitutional Court’s decisions on the transition from the imputation procedure to the half-income procedure (Art. 34 and 36 KStG) 
• Flat-rate taxation of mobility budgets (Art. 40 EStG) 
• Extension of the settlement period for investment funds from five to ten years 
• Group clause for the deferred taxation of non-cash benefits from capital participations (Art. 19a EStG)
• Amendments to the Reorganization Tax Act 
• Permission for the direct transfer of tax data from the authorizing authorities to investigating authorities (Art. 31a AO)
• Charitable housing, discounted letting to needy persons in need (Art. 52 (2) sentence 1 no. 27 AO) 
• Adaptation of Art. 10 (6) and Art. 13d and 28 (3) ErbStG in line with EU law 
• Amendments to the law on tax statistics 
• Average rate for farmers and foresters (Art. 24 (5) sentence 4 UStG) 
• VAT exemption for educational services (Art. 4 (21) UStG) 
• Tax exemption for the remuneration of the travel insurance fund (Art. 7a RSG)

In the following, we present selected important planned changes to the draft of the Annual Tax Act 2024. It remains to be seen whether the government draft will be adopted unchanged in the legislative process.

I.    German Income Tax Act

a.    Employee shareholdings (Art. 19a EStG)
i.    In the current version of the standard, deferred taxation is only tax privileged for asset participation in the employer's company. With retroactive effect from January 1, 2024, the scope of application is to be extended to the transfer of shares in group companies. However, the tax relief for shares in a group company only applies if the thresholds of Art. 19a (3) EStG are not exceeded for the entirety of all group companies and no group company was established more than 20 years ago.

b.    Tax exemption for photovoltaic systems (Art. 3 No. 72 EStG)
i.    The new version extends the tax-exempt threshold to systems with a gross output of up to 30 kw (peak) per residential or commercial unit and a total of 100 kw (peak) per taxpayer or co-entrepreneur. The new regulation is to be applied for the first time to photovoltaic systems that are acquired, commissioned or expanded after December 31, 2024

c.    Restructuring income (Art. 3a EStG)
i.    The separate determination of the restructuring income and the amount of the reducing amounts pursuant to Art. 3a (3) sentence 2 nos. 1 to 6 and 13 EStG must generally be determined separately in the case of co-entrepreneurships. The amendment of Art. 3a (4) sentence 1 EStG is intended to clarify that this shall also apply in cases of residual debt discharge.
ii.    Furthermore, the amendment of Art. 3a (5) sentence 1 EStG is intended to clarify that tax options are to be exercised to reduce profits in the event of residual debt discharge (Art. 3a (1) sentence 2 EStG) and that the spouse’s current amounts and loss carryforwards are to be included in the reduction of the amounts pursuant to Art. 3a (3) EStG.
Amendments are to apply after the date of promulgation.

d.    Book value transfer of assets between co-entrepreneurships with identical shareholdings
i.    In its decision BvL 8/13 of November 28, 2023, the BVerfG ruled that Art. 6 (5) sentence 3 EStG is incompatible with Art. 3 (1) German Basic Law (“GG”) to the extent it excludes the transfer of joint assets between co-entrepreneurships with identical shareholdings at book value.
ii.    The new provision of Art. 6 (5) sentence 3 no. 4 EStG is now intended to expressly allow the transfer of assets between partnerships with identical shareholdings at book value.
iii.    Art. 6 (5) sentence 3 no. 4 EstG-E is to be applied in all open cases. For transfers before January 12, 2024, assessment notices pursuant to Art. 180 (1) sentence 1 no. 2 a AO are to be amended to implement the book value approach at the acquiring co-entrepreneurship by applying Art. 174 (4) AO accordingly. Art. 176 (1) sentence 1 no. 1 AO should not prevent the book value approach at the acquiring co-entrepreneurship for transfers before January 12, 2024. Upon joint request of the co-entrepreneurs at the time of the transfer, the application of Art. 6 (5) sentence 3 no. 4 may be waived for transfers prior to January 12, 2024 for reasons of protection of legitimate expectations.

e.    Special expense deduction
i.    The new provision of Art. 10 (2) no. 1 EStG extends the special expense deduction for pension benefits arising in connection with income from employment in the EU, EEA or Switzerland in all open cases. In the current version, a special expense deduction is only possible for pension benefits arising in connection with income from employment. In particular, this shall apply to pension income or income from freelance work (cf. BFH, decisions of October 27, 2021, X R 11/20 and of May 24, 2023, X R 28/21).

f.    Income from capital assets (Art. 20 (1) Nr. 11 EStG)
i.    If the option writer concludes a close-out transaction, the premiums paid in the close-out transaction must be taken into account as negative income at the time of payment. (Non-application legislation with regard to BFH decision of August 2, 2022, VIII R 27/21)
ii.    Amendments are to apply after the date of promulgation.

g.    Wage-tax allowance (Art. 39a EStG)
i.    If the requirements of Art. 24b EStG are met, the relief amount for single parents can in future be formed as an allowance for the wage tax deduction procedure from the month of separation in accordance with Art. 39a (1) No. 9.
ii.    The application deadline for the application of the wage tax allowance will be extended by one month. In future, applications must be filed by November 1 of the previous year for which the allowance is to apply.
The amendments are to apply after the date of promulgation.

h.    Flat-rate taxation of mobility budget (Art. 40 (2) no. 8 EStG)
i.    In future, employers shall have the option of levying wage tax on the use of mobility services outside of work in the form of a non-cash benefit or allowance at a 25% flat rate. It will not be possible to apply a flat rate of wage tax to the mobility budget if a flat rate is already applied in accordance with Art. 40 (2) sentence 1 no. 2 EStG for journeys between home and the first place of work.
ii.    The mobility budget comprises the option made available to employees for the use of off-duty mobility services, irrespective of the means of transport, in the form of a non-cash benefit or subsidy. This does not apply to aircraft, private motor vehicles and motor vehicles permanently provided to employees, including company cars. In this respect, the Federal Government is focusing on the short-term and occasional provision of various mobility services (e.g., e-scooters, car or bike sharing services and transportation service providers).
The amendments are to apply after the date of promulgation.

i.    Exercise of the flat-rate option (Art. 40 (4) EStG)
i.    In future, the flat-rate option is to be exercised by submitting the wage tax return. Alternatively, it shall be possible to exercise the flat-rate option as part of an external wage tax audit by submitting a written or electronic declaration to the permanent establishment’s tax office. The declaration must be submitted no later than by the time the assessment notices issued on the basis of the wage tax audit become final.
The amendments are to apply after the date of promulgation and shall be applicable to all open cases.

j.    Income subject to limited tax liability (Art. 49 EStG (1) no. 4 f EStG)
i.    In future, income from employment that is granted for periods of revocable or irrevocable leave of absence from work in connection with the termination of the employment relationship will be subject to limited tax liability to the extent the work would have been performed in Germany during these periods without the leave of absence.
The amendments are to apply after the date of promulgation.

k.    Avoidance of double taxation in the case of leave of absence (Art. 50d (15) EStG)
i.    The new regulation is intended to codify the legal interpretation of the OECD Model Tax Convention. The administrative opinion in the BMF letter dated December 12, 2023 (BStBl 2023 I p. 2179, para. 361 and 362) would be outdated in this respect.
ii.    Wages paid for periods of revocable or irrevocable leave of absence in connection with the termination of the employment relationship shall, for the purposes of applying a convention to avoid double taxation, be regarded as remuneration granted for the performance of an activity in the State in which the activity would have been performed if the leave of absence had not been granted.
iii.    This does not apply if the convention contains a deviating regulation in a separate provision expressly relating to such wages.
The amendments are to apply after the date of promulgation.

l.    Application for children’s allowance (Art. 67 p. 1 EStG)
i.    In future, applications for children’s allowance are to be made electronically via an officially prescribed interface. Hardship regulations shall generally be possible.
ii.    The new regulation applies to applications received after the date of promulgation of the law.

m.    Bonus payments from statutory health insurance funds (Art. 10 (2b) EStG)
i.    Bonus payments made on the basis of Art. 65a of the Fifth Book of the German Social Code in accordance with the statutes of the statutory health insurance funds are not deemed to be contribution refunds up to an amount of EUR 150 per insured person and contribution year; bonus payments in excess of this amount are always deemed to be contribution refunds. The taxpayer can prove that bonus payments in excess of this amount do not qualify as a contribution refund.
ii.    The new regulation is to apply from January 1, 2025. 

n.    Benefits from foreign company pension schemes (Art. 22 no. 5 sentence 2 EStG)
i.    Under current law, benefits from foreign occupational pension schemes (pension funds, pension schemes and direct insurance policies) are not subject to full deferred taxation in accordance with Art. 22 no. 5 sentence 1 EStG, even if the taxable benefits are based on contributions that are tax-privileged or tax-exempt abroad.
ii.    In order to avoid a possible preferential treatment, it should be clarified by law that not only a tax exemption of contributions for German tax purposes, but also a comparable tax exemption or preferential treatment of contributions for foreign tax purposes leads to benefits within the meaning of Art. 22 no. 5 sentence 1 EStG.
iii.    The new regulation is to apply from January 1, 2025.

o.    Refund of construction withholding tax (Art. 48c EStG)
i.    In future, the refund of construction withholding tax is to be made electronically in accordance with the officially prescribed data set via the officially prescribed interface by the end of the second calendar year following the year in which the withholding amount was declared.
ii.    The new regulation is to apply from January 1, 2026.

II.    Corporate Income Tax Act

a.    Participation in other corporations and associations of persons (Art. 8b (3) sentence 4 KStG)
i.    The addition to Art. 8b (3) sentence 4 KStG is intended to clarify that the attribution rule of Art. 8b (4) sentence 3 KStG also applies to genuine security repurchase agreements within the meaning of Art. 340b (2) HGB.
ii.    The new regulation shall apply in future to all open cases.

b.    Contributions not made to the nominal capital
i.    Art. 27 (2) sentence 3 KStG
1.    In future, the scope of application of Art. 27 (2) sentence 3 KStG shall not apply to cases of application falling under the German Reorganization Tax Act.
2.    Under the amendment, all reorganizations would, in deviation from the previous treatment, no longer require a determination of the opening balance of the contribution account for tax purposes pursuant to Art. 27 (2) sentence 3 KStG in future, even if the acquiring corporation is newly created as a result of the reorganization. At the same time, the transferred contribution account balance would have to be treated as an addition for the current financial year and would therefore not yet be available for offsetting purposes pursuant to Art. 27(1) sentence 3 KStG in the first financial year of the acquiring corporation created by the reorganization. 
The amendments are to apply after the date of promulgation.
ii.    Art. 27 (6) sentence 3 KStG
1.    The new regulation is intended to codify the administrative regulation and the general understanding of adjustment entries within the scope of a multi-level tax group.
2.    The regulation is intended to clarify that in the case of an indirect tax group, the increase and reduction of the controlled company’s contribution account for tax purposes due to and adjustment entry caused by the tax group - if applicable on a pro rata basis - must also be made at the level of the intermediate company (see also BMF letter dated September 29, 2022, BStBl I p. 1412, points 27 to 35); in the case of an additional distribution (Mehrabführung), the intermediate company’ contribution account for tax purposes must be reduced accordingly by direct access pursuant to Art. 27 (1) sentence 3 KStG. 
3.    As the provision applies in the cases of Art. 14 (1) sentence 1 no. 1 sentence 2 KStG, it does not apply if the direct shareholding already grants the majority of voting rights (Art. 14 (1) sentence 1 no. 1 sentence 3 KStG).
4.    The new regulation is to be applied to all adjustment entries made after December 31, 2021.

c.    Capital changes in cross-border reorganizations
i.    Art. 29 (6) sentence 2 KStG
1.    In future, an (additional) procedure to separately determine the amount of contributions not made to the nominal capital of the transferring corporation or association of persons will no longer be required.
2.    The transferred balance is to be determined by applying Art. 27 (1) to (5) KStG and Art. 29 (1) in conjunction with section 28 (2) sentence 1 KStG accordingly. Under procedural law, the determination of the transferred contribution balance is part of determining the balance of the domestic acquiring corporation’s contribution account for tax purposes and must be taken into account at such corporation as a current addition when separately determining the balance of the contribution account for tax purposes.
3.    This eliminates the need for a separate declaration obligation on the part of the participating entities and an administrative procedure on the part of the tax authorities.
The amendments are to apply after the date of promulgation.

d.    Transition to the half-income method
i.    (Art. 34 (11) KStG – Art. 36 (4), (6) and (6a) KStG)
1.    According to the Federal Constitutional Court’s decision of November 24, 2022 - 2 BvR 1424/15 - the previously valid regulation is unconstitutional to the extent the provision leads to a loss of corporate income tax reduction potential because it does not include the partial amount of usable equity - EK 04 - referred to in Art. 30 (2) no. 4 KStG 1999 in the offsetting of the unencumbered partial amounts.
2.    Due to the amendment of paragraphs 4 and 6 of Section 36 KStG to Section 34 paragraph 11 KStG, a positive balance of EK 04 is to be included in the offsetting of the unencumbered partial amounts of EK 0 (EK 01 – EK 03).
3.    The new regulation is applicable to all cases in which the final balances pursuant to Art. 36 (7) KStG have not yet been finally determined.

III.    Trade Tax Act

a.    Trade income (Art. 7 sentences 8 and 9 GewStG)
i.    In future, income generated in a foreign permanent establishment, which would be taxable pursuant to Art. 7 to 13 of the Foreign Transaction Tax Act if the permanent establishment were a foreign company within the meaning of these provisions, shall be deemed to have been generated in a domestic permanent establishment.
ii.    The new version of Art. 7 sentence 8 GewStG is intended to clarify that all passive foreign permanent establishment income is deemed to have been generated in a domestic permanent establishment and therefore also income for which Germany already has the right of taxation under an income tax treaty.
iii.    The new regulation is to apply in future to all open cases.

IV.    Reorganization Tax Act

a.    Valuations in the transferring corporation’s closing tax balance sheet (Art. 3 (2a) UmwStG)
i.    The new provision in Art. 3 (2a) UmwStG will in future stipulate a filing deadline for the submission of the transferring corporation’s closing balance sheet.
ii.    The transferring corporation’s closing tax balance sheet must be submitted electronically to the competent tax authority no later than 14 months after the end of the tax period in which the transfer date for tax purposes occurs; Art. 5b of the Income Tax Act applies accordingly.
The amendments are to apply after the date of promulgation.

b.    Taxation of the transferring corporation’s shareholders (Art. 5 (2) UmwStG)
i.    Art. 5 (2) UmwStG in its current version does not cover other shares held as private assets.
ii.    With the amendment, all taxable shares in the transferring legal entity held as private assets are now deemed to have been contributed to the business assets of the acquiring legal entity.
The amendments are to apply after the date of promulgation.

c.    Taxation of the transferring corporation’s shareholders (Art. 13 (2) UmwStG)
i.    The intended amendment of Art. 13 (2) sentence 1 UmwStG requires the shares in the acquiring corporation to be recognized at the carrying amount of the shares in the transferring corporation, if the requirements of Art. 13 (2) sentence 1 no. 1 or no. 2 UmwStG are met and if the taxpayer does not apply for recognition of the fair market value in accordance with Art. 13 (1) UmwStG.
ii.    The book value approach thus becomes the new standard case if the requirements are met.
iii.    Recognition at fair market value pursuant to Art. 13 (1) UmwStG takes place upon application or if the requirements of Art. 13 (2) sentence 1 no. 1 or no. 2 UmwStG are not met.
iv.    Art. 13 (2) sentence 1 UmwStG is also intended to introduce a deadline for the application for recognition at fair market value pursuant to Art. 13 (1) UmwStG. Accordingly, the application would generally be possible until the expiry of the deadline for filing the tax return for the calendar year of the conversion. However, the application would have to be submitted, at the latest, together with the tax return and is irrevocable.
The amendments are to apply after the date of promulgation.

d.    Trade tax on the transfer of assets to a partnership or an individual and on a change of legal form to a partnership (Art. 18 (3) UmwStG)
i.    Pursuant to Art. 18 (3) sentence 1 UmwStG, a gain on disposal or discontinuation is subject to trade tax if the business of a partnership or an individual is discontinued or sold within five years of the conversion of a corporation into the partnership or the merger into the individual.
ii.    The same applies in accordance with Art. 18 (3) sentence 2 UmwStG to the sale or discontinuation of a business unit or a share in the acquiring partnership.
iii.    In practice, the tax authorities have become aware of arrangements in which the shares in the acquiring partnership were sold indirectly and it was argued that these cases are not covered by Art. 18 (3) sentence 2 UmwStG.
iv.    Art. 18 (3) sentence 3 UmwStG - new - therefore expressly stipulates that a gain on disposal or discontinuation is also subject to trade tax to the extent that a share in a partnership that acts as an intermediary for the interest in the acquiring partnership is sold or discontinued by an individual and to the extent this gain on disposal or discontinuation is attributable to the share in the acquiring partnership.
The amendments are to apply after the date of publication of the draft bill of the Annual Tax Act 2024 (May 17, 2024).

e.    Contribution of business units to a corporation (Art. 20 (2) sentence 5 UmwStG)
i.    The new sentence 5 clarifies that, in accordance with the existing administrative interpretation of Art. 20 (2) sentence 2 no. 2 UmwStG in conjunction with Art. 20 (5) UmwStG, withdrawals and contributions in the retroactive period must be taken into account when determining the contributed business assets. Thus, it is not possible to recognize the contributed business assets’ book value if this, taking into account withdrawals and contributions in the retroactive period, would result in negative acquisition costs. 
ii.    If the contributed business assets are negative, taking into account the withdrawals and contributions in the retroactive period, the contributed assets’ book values must be increased. 
iii.    The new sentence 5 also applies to the application of Art. 20 (2) sentence 2 no. 4 UmwStG and Art. 20 (2) sentence 4 UmwStG.
iv.    The new regulation is already to be applied to contributions where, in cases of universal succession, the conversion resolution or, in other cases, the conclusion of the contribution agreement took place after December 31, 2023. This retroactive regulation must be viewed critically from a constitutional point of view.

V.    German General TaxCode

a.    Charitable housing: Discounted letting to needy persons (Section 52 (2) sentence 1 no. 27 AO)
i.    With the new regulation, the discounted letting to needy persons pursuant to Art. 53 AO is intended to fulfill charitable housing purposes.
ii.    In this respect, this letting is to be regarded as the realization of a non-material purpose. Potential losses can therefore be offset against other income from the non-material area.
iii.    To this end, the rent must be set permanently below the usual market rent and must be paid to people in need.
iv.    The new regulation is to be applied from January 1, 2025.

VI.    German VAT Act

a.    Work performance (Art. 3 (4) UStG)
i.    According to the German Federal Financial Court (“BFH”), a work performance only exists if the contractor edits or processes a “third-party” item (see BFH decision of August 22, 2013, V R 37/10, BStBl 2014 II p. 128).
ii.    The new regulation implements BFH case law. If, in future, no third-party item will be provided, there is no work performance.
The amendments are to apply after the date of promulgation. 

b.    Liability in the event of assignment, pledging or attachment of receivables (Art. 13c (1) UStG)
i.    In its decision of July 23, 2020, V R 44/19, the BFH ruled that the entry of a VAT claim in the insolvency schedule (Art. 178 (3) InsO) does not result in a due date at the assignee’s expense in the case of liability under Art. 13c UStG, even taking into account Art. 41 (1) InsO.
ii.    In future, the following shall apply: upon opening of insolvency proceedings, VAT within the meaning of Art. 13c (1) sentence 1 UStG, which represents an insolvency claim at the time of opening and has not yet become due, is deemed to be due in relation to the assignee.
The amendments are to apply after the date of promulgation.

c.    Unauthorized tax disclosure (Art. 14c (2) UStG)
i.    In its decision of November 27, 2019 - V R 23/19, the BFH decided, among other things, that a credit note that is not issued for a service provided by an entrepreneur is not equivalent to an invoice and cannot establish a tax liability in accordance with Art. 14c (2) UStG.
ii.    In these cases, according to the new regulation, the recipient of the “credit note” is also regularly liable for the stated VAT.
The amendments are to apply after the date of promulgation.

d.    Input tax apportionment (Art. 15 (4) sentence 3UStG)
i.    Determining the non-deductible part of the input VAT amounts on the basis of the ratio of the sales excluding the input VAT deduction to the total sales shall only be permissible if no other, more precise economic allocation is possible.
ii.    The new wording is not supposed to result in any changes to the content.
The amendments are to apply after the date of promulgation.

e.    Taxation procedure (Art. 18 UStG)
i.    The amendment to Art. 18 (9) sentence 7 UStG limits the exclusion of the refund to input tax amounts that are attributable to the purchase of fuels that are consumed by the company itself.
ii.    Under the planned new regulation of Art. 18 (12) UStG, foreign companies are now informed of their obligation to register in Germany and thus of the application of the general taxation procedure if their sales are not subject to the individual taxation of transportation (Art. 16 (5) UStG) or if they do not participate in one of the special taxation procedures.
The amendments are to apply after the date of promulgation.

f.    Flat-rate input tax for farmers and foresters (Art. 24 UStG)
i.    The average rate and the input tax flat rate for farmers and foresters are to be reduced to 8.4 % for 2024.
The amendments are to apply after the date of promulgation.

g.    Withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union (Art. 30 UStG)
i.    For supplies and intra-Community acquisitions performed after December 31, 2020, the territory of Northern Ireland shall be treated as other Community territory.
ii.    A VAT identification number with the prefix “XI” is deemed to be a VAT identification number issued by another Member State.
The amendments are to apply after the date of promulgation.

h.    Place of the other service (Art. 3a (3) no. 3 UStG)
i.    The government draft provides for a new regulation for determining the place of performance of other services in the case of cultural, artistic, scientific, educational, sporting, entertainment or similar services.
ii.    Significant changes are to occur for supplies that are transmitted via streaming or otherwise made available virtually. In these cases, the services are to be taxed in the country where the non-business recipient is resident or has their domicile or place of habitual abode.
The new regulation is to be applied from January 1, 2025.

i.    Tax exemptions (Art. 4 UStG)
i.    The tax exemption under Art. 4 no. 8 UStG is extended to the “management of loans by lenders” and to the “management of loan collateral by lenders”.
ii.    The tax exemption for educational services under Art. 4 no. 21 UStG is to be adapted to the requirements of the VAT System Directive. The scope of application is to be extended with the new regulation. The previous certification procedure is to be abolished in future.
iii.    The tax exemption for sporting services in accordance with Art. 4 no. 22 UStG is to be adapted to the requirements of EU law as well as ECJ and BFH case law. The scope of application is to be extended with the new regulation. The scope of the tax exemption is to be extended to services that are closely related to sport and physical training.
The new regulations are to be applied from January 1, 2025.

j.    Reduced tax rate according to Art. 12 (2) UStG)
i.    The government draft provides for the repeal of the regulation in Art. 12 (2) no. 12 and Art. 13 UStG. Supplies, intra-Community acquisitions and imports of works of art and collectors’ items will in future be subject to the reduced VAT rate.
The new regulation is to be applied from January 1, 2025.

k.    Taxation of small businesses (Art. 19 and 19a UStG)
i.    t is intended to adapt the existing small business regulation to the Small Business Directive (Directive (EU) 2020/285).
ii.    Previously, only entrepreneurs domiciled in Germany were able to make use of the small business regulation of Art. 19 UStG in Germany. The new regulation also enables entrepreneurs domiciled in in other countries of the European Union to apply the small business regulation in Germany. A special reporting procedure (Art. 19a UStG) has been introduced in order to enable entrepreneurs domiciled in Germany to claim the tax exemption in another member state. In future, small businesses domiciled in Germany can claim the tax exemption for their domestic turnover if this turnover does not exceed EUR 100,000 in the current calendar year (previously based on a preliminary estimate at EUR 50,000) and EUR 25,000 (previously EUR 22,000) in the previous calendar year.
iii.    In the current version, VAT is not levied on small businesses. The regulation is intended to introduce a tax exemption.
The new regulation is to be applied from January 1, 2025. 

l.    VAT margin scheme (Art. 25a UStG)
i.    The provision of Art. 25a UStG is to be amended to the effect that the margin scheme cannot be applied to works of art, collectors’ items and antiques if the reseller’s incoming turnover was subject to a reduced tax rate.
The new regulation is to be applied from January 1, 2025.

m.    Transitional regulation for the mandatory application of the new regulation on the taxation of public sector sales (Art. 27 (22a) UStG)
i.    The transitional provision in Art. 27 (22a) UStG on the application of the new regulation of sales taxation (Art. 2b UStG) by legal entities under public law is extended by a further 2 years up to and including December 31, 2026.

n.    Input tax deduction (Art. 15 (1) UStG)
i.    The conditions for input VAT deduction are to be restricted for supplies by a taxpayer subject to actual taxation (Ist-Besteuerung). In future, input VAT can only be deducted if the recipient pays for the supply or service received.
ii.    To the extent taxation is based on the consideration received, this must be listed as mandatory invoice detail in future (Art. 14 (4) sentence 1 no. 6a (new)).
The new regulation is to be applied from January 1, 2026 (applicable for the first time to invoices issued after December 31, 2025).

VII.    Real Estate Transfer Tax Act

a.    Affiliation of a property (Art. 1 (4a) GrEStG)
i.    In order for the additional requirements pursuant to Art. 1 (2a) to (3a) GrEStG to be met, a property must “belong” to a company and must thus be attributable to such company. In its current version, the Real Estate Transfer Tax Acta does not include a legal provision for such attribution; rather, the term has been interpreted by the administration and case law. 
ii.    The new regulation stipulates that a property is part of the assets of such company which last met a fundamental requirement in accordance with Art. 1 (1) GrEStG with regard to the property if and as long as the acquisition was not reversed in accordance with Art. 16 (1) GrEStG. In contrast to the tax authorities’ current opinion (decree of the supreme tax authorities of the federal states dated October 16, 2023, DStR 2023, p. 2571), a share deal subject to real estate transfer tax within the meaning of Art. 1 (3) or (3a) GrEStG is no longer intended to result in the property belonging to the acquirer of the shares.
The amendments are to apply after the date of promulgation. 

VIII.    Inheritance and Gift Tax Act

a.    Estate liabilities in cases of limited tax liability (Art. 10 (6) and 6b ErbStG)
i.    Art. 10 (6) ErbStG restricts the deductibility of estate liabilities. In cases of limited tax liability, only estate liabilities that are economically related to individual assets that are subject to German taxation are deductible in accordance with Art. 10 (6) sentence 2 ErbStG. According to the case law of the Federal Fiscal Court, the heir’s obligation to fulfill an asserted claim to a compulsory portion is not economically related to individual assets acquired. Therefore, liabilities from compulsory portion are not deductible in the case of limited tax liability.
ii.    The amendment is intended to implement ECJ case law and regulate a pro rata deductibility of estate liabilities in cases of limited tax liability. This deductibility should be possible in accordance with the proportion of the assets subject to German inheritance tax.
iii.    The revised versions of Art. 10 (6), (6a) and (6b) ErbStG are to apply to acquisitions for which the tax arises from the month following the promulgation of this Amendment Act.

b.    Tax exemption for properties let for residential purposes (Art. 13d ErbStG)
i.    The amendment is an adjustment to the case law of the Court of Justice of the European Union (ECJ). In its ruling of October 12, 2023 (case C-670/21 (BA)), the ECJ ruled that the tax exemption for land let for residential purposes pursuant to Art. 13c ErbStG 2009 [Art. 13d ErbStG], to the extent land in third countries is excluded from this benefit, is fundamentally in breach of the free movement of capital (Art. 63 to 65 TFEU). An exclusion of the exemption discount was only justified for properties in third countries with which there is no comprehensive exchange of information.
ii.    With the new provision of Art. 13d (3) no. 2 ErbStG2, the exemption discount can be granted not only if the property is located in Germany or in a member state of the European Union if the other requirements are met. The exemption discount can also be granted if the property is located in a third country and an exchange of information with this third country is ensured with regard to inheritance tax.
The amendments are to apply after the date of promulgation. 

c.    Tax deferral for residential property (Art. 28 (3) ErbStG)
i.    In future, a deferral of up to ten years is to be granted upon application if the purchaser can only pay the tax by selling the property used for residential purposes.
ii.    The previous deferral provision only covered properties that met the requirements of Art. 13d (3) ErbStG at the time of acquisition, i.e., that were rented out for third-party residential purposes or, in the case of detached houses, semi-detached houses and condominiums, were used for own residential purposes after acquisition. The amendments to Art. 28 (3) ErbStG extend the deferral rule to all cases in which property is used for residential purposes. In particular, the new deferral regulation now also covers cases in which the property used by the testator or donor is rented out for residential purposes after the inheritance or gift.
The amendments are to apply after the date of promulgation.